Building an affordable housing strategy that is responsive to community needs and market driven

As we begin a new year, MACDC plans to be working on a wide cross section of housing issues. Our goal is to create an affordable housing system that is better able to meet the diverse needs of our residents and communities. This will require both more money and more flexibility. In a series of articles to be published in early 2016, MACDC is articulating some its thoughts about how we do this. The first article talked about how we can grow the resource pie – the first and most essential step to meeting growing demand for affordable housing. In the second article, we talked about how to lower operating costs so that we can use our limited subsidies more efficiently. In the third article, we talked about how to deploy our resources in a more balanced way that enables us to better respond to local market contexts and to community driven priorities.  Our fourth and final article discusses how we can create affordable housing that can serve a broader range of income levels.

Article #4: Creating Mixed Income Housing

A growing number of stakeholders in the housing field – community developers, fair housing advocates, local residents, elected officials and urban planners – support mixed-income housing.  Governor Baker and Mayor Walsh make this argument virtually every time they talk about our housing challenges.  They and many others agree that mixed-income housing is the best way to expand housing opportunities for low- and moderate-income households without concentrating poverty.  Mixed-income housing is especially critical in expensive places, like Greater Boston, where even those with moderate incomes struggle to find housing that they can afford.  In weaker markets, like some of our Gateway Cities, mixed income housing can help revitalize a neighborhood and create more racial and economic integration.  At the same time, some advocates, including some of our members, struggle to reconcile providing subsidies to moderate income people when so many lower income families are still struggling, especially when the term “moderate income” is sometimes defined to be as high as $125,000 per year or more for certain households.  

Notwithstanding these on-going debates, we believe that the affordable housing industry needs to produce mixed income housing – not just in one building, but comprehensively.  The state recently approved funding for over 1,100 affordable housing units and the vast majority of them are priced for people whose incomes range from 50-60% of Area Median Income (AMI) – a fairly narrow income band that excludes many families below and above that range who still need help.  The Low Income Housing Tax Credit (LIHTC) program, which finances almost all new affordable rental housing, does nothing to help moderate income households making between approximately $55,000 and $80,000 – a growing contingent of families who can’t afford our rising housing costs. And while some families earning less than 50% of AMI can afford to rent LIHTC units by paying more than 30% of their income for rent, LIHTC housing cannot help families facing or at risk of homelessness without the use of an additional subsidy source – namely rental assistance from either the state’s MRVP Program or the federal Housing Choice Voucher programs.  In fact, research (PDF) shows that a very large percentage of LIHTC units are now occupied by voucher holders – an inefficient use of subsidy made inevitable due to structural problems in both the LIHTC program (narrow income targeting) and Section 8 (rent limits that are too low for many units in the private market).  

In the short term, to achieve the goal of providing affordable housing across a broader range of incomes than the tax credit program currently allows, we will need to continue using rental subsidies for lower income households.  At the same time, the state needs to identify new resources that can be used in combination with tax credits to subsidize “moderate income” units for households earning between 61% AMI to 100% AMI, or up to about $95,000 for a 4-person household in Greater Boston.  These new “moderate income” subsidies,  should not be taken from resources currently aimed at lower income households and  should be smaller than what we are providing to lower income units (the higher rents should make that possible).  However, the bottom line is that without some financial support for this moderate tier, mixed-income housing will remain very difficult to produce, except in the strongest rental markets.  And in those strong markets, there would be a significant gap between the tax credit rents and the market rents, leaving middle income households unserved yet again.

In the long term, we need to reform the LIHTC program to allow developers/owners to offer a range of rents.  A number of organizations, including HUD and the National Low Income Housing Coalition (NLIHC), have recommended a specific way to achieve this goal:  allow LIHTC projects to serve a range of incomes, so long as the “average” is 60% AMI.  This would allow, for example, a 30 unit project to have 10 units priced at 40%, 60% and 80% of AMI respectively.  The developer receives the same total rent revenue, but a broader range of families could afford to live there.  While enacting such a change will be hard given the dysfunction in Congress, we need to keep pushing, so that we can strike when the opportunity arises.  In the meantime, we might consider experimenting with this model with the Commonwealth’s low income housing credit.

Creating mixed income housing will require new dollars and new creativity. We are confident that the housing sector can bring the creativity – we will need the public sector to bring new and more flexible dollars.

Building an affordable housing strategy that is responsive to community needs and market driven

As we begin a new year, MACDC plans to be working on a wide cross section of housing issues. Our goal is to create an affordable housing system that is better able to meet the diverse needs of our residents and communities. This will require both more money and more flexibility. In a series of articles to be published in early 2016, MACDC is articulating some its thoughts about how we do this. The first article talked about how we can grow the resource pie – the first and most essential step to meeting growing demand for affordable housing. In the second article, we talked about how to lower operating costs so that we can use our limited subsidies more efficiently. In this article, we talk about how to deploy our resources in a more balanced way that enables us to better respond to local market contexts and to community driven priorities.  Our fourth article will address how to create affordable housing that can serve a broader range of income levels.

Article #3: Creating a More Balanced and Community Driven Affordable Housing System

Every community requires a diverse array of housing to meet the needs of its current and future residents.  Neighborhoods must have housing at a variety of price points, as well as rental and homeownership opportunities, housing for seniors, families and young adults, and large and small multi-family buildings, along perhaps with some single family homes and two or three-family homes. And we must build new housing, while maintaining and preserving the homes we already have developed.  These incredible housing pressures are further compounded by the constant shortage of funds required to meet the needs of each neighborhood and town in the Commonwealth.  (See the first article in this series to learn about our efforts to correct that shortage).

At present, well over 90% of our affordable housing dollars are used either to preserve our existing affordable housing or to produce new rental housing through the low income housing tax credit program (LIHTC).  The LIHTC program is fairly flexible – allowing developers to work with local stakeholders to meet local demands, but tax credits have their limitations.  LIHTC projects offer rents designed to serve a narrow income band, generally between 50 and 60 percent of the Area Median Income (AMI). Families that earn slightly more are ineligible and families that earn less can only afford the rents by paying over 30% of their income or by using a rental subsidy.  To be sure, many lower-income households do use rental subsidies, so they can live in tax credit properties, and this further underscores the limitation of the tax credit program’s design.  Moreover, LIHTC projects tend to be 25-50 units in size, or larger, and of course they only offer rental housing opportunities.  In recent years, due to rising construction and operating costs, an increasing percentage of the state’s housing bond resources are now being used to fill financing gaps in LIHTC projects, leaving less and less for other housing priorities.

The LIHTC program will remain at the core of the affordable housing sector for the foreseeable future.  It is a proven tool for producing high quality, well designed affordable rental housing.  In our next article in this series will talk about ways to improve the LIHTC so it can help produce rental housing for a broader range of incomes. In the meantime, MACDC, is advocating for new programs that will complement the tax credit, and enable the affordable housing field to be more responsive to local needs, desires and markets. These programs are very much in line with the Baker Administration’s stated approach of designing state programs in response to local needs and opportunities.

MACDC is advocating for the following:

1. Community Scale Housing Program – We are very pleased that the Baker Administration has embraced our recommendation to create a new Community Scale Housing Program that will provide funding for smaller rental projects between 6 and 20 units in size. Such projects are too small to use the LIHTC program, and, therefore, have become very difficult to finance, even though they offer many benefits.  These projects are often a better fit in urban, suburban and rural communities and can be easier and faster to build with fewer transaction costs.   They also can be developed at lower total costs – sometimes as much as $50,000 to $100,000 less per unit than larger, more complex rental projects.  We hope to see a new program launched in the coming months.
2. Acquisition/Rehab Program:  During the foreclosure crisis, the state partnered with the Massachusetts Housing Investment Corporation to use federal Neighborhood Stabilization Program money to provide funds to nonprofit and for-profit developers to acquire foreclosed properties, renovate them and put them back on the market. The program was very successful, but ran out of money when the Federal Stimulus funds were depleted.  Massachusetts still has many vacant or dilapidated properties that could benefit from such a program. We need to re-allocate some of our existing resources (and create new resources) to support such projects, so we can revitalize housing markets in our Gateway Cities and other weaker markets that are still struggling to recover from the foreclosure crisis.  These projects often can be completed at a lower cost than new construction and they have the added benefit of eliminating or rehabilitating blighted properties.
3. Housing Rehab:  For many years, CDCs, cities and others have operated housing rehab programs that provide zero or low interest loans to homeowners, so they can fix up their properties; in 2014, CDCs improved 380 units.  These programs can advance many important policy objectives: housing code compliance, improved energy efficiency, lead paint abatement, blight reduction, and allowing seniors to age in place. Federal cuts to the Community Development Block Grant (CDBG) Program and the HOME Program – and the prioritization of other housing needs – have prevented the increase in funding necessary to address the growing needs of an aging housing stock and an aging population. MACDC believes these programs are vital to our neighborhoods and communities and should be given greater priority.  One immediate focus for MACDC is to reinvigorate the Get the Lead Out Program that provides deferred loan payments to income-eligible homeowners that want to de-lead their homes. The program used to make 200+ loans per year, but in recent years that number has fallen to less than 40 loans per year. We are working with MassHousing and the Department of Housing and Community Development (DHCD) to review program guidelines, assess administrative challenges and ensure funding levels, so that this program can effectively address the ongoing scourge of childhood lead poisoning.
4. Slowing displacement in hot markets: Three of our members are experimenting with programs to buy properties in strong markets as a way to slow displacement and gentrification and to ensure some homes remain affordable to families and working people.  Allston Brighton CDC, Somerville CC and Metro West Community Developers are each developing different models tailored to its local market for acquiring existing housing stock and removing it from the speculative market.  We need to be open to creative ways to buy affordability in existing properties at a wide range of price points. In short, we need to encourage this sort of innovation and support expansion if particular models prove viable. 
5. Homeownership Development – Throughout the recession, DHCD did not fund homeownership development due to the weak homeownership market and the need to prioritize rental housing. In 2014, DHCD re-opened its “homeownership round” for the first time in many years and approved five projects.  DHCD is currently evaluating the progress on those projects before deciding whether and how to move forward.  While rental housing should always be the priority, it is certainly appropriate to spend 5 to 10 percent of our resources on homeownership projects that can help achieve one of two core policy goals.  First, homeownership is key to stabilizing and strengthening housing markets in neighborhoods with low homeownership rates.  In these neighborhoods, homeownership programs can put blighted properties back on the tax rolls and increase economic diversity at a lower per-unit subsidy level than rental housing.  Second, homeownership programs can open up access to otherwise exclusive communities where working people are priced out. The significant racial disparities in mortgage lending recently documented by the Massachusetts Community & Banking Council reinforce the need for new affordable homeownership development.

Housing advocates are generally able to unify around campaigns to increase funding for affordable housing. It is understandably much harder to build unity when it comes to allocating scarce resources across many important priorities.  We cannot avoid these tough questions and conversations.  Choices must be made.  As community developers who pride ourselves on engaging and empowering local residents, we need to make sure those choices reflect what we hear from community leaders about what our neighborhoods need to thrive.  Ultimately, a balanced and community-driven housing agenda requires a diverse set of tools and programs to be successful.

As we begin a new year, MACDC plans to be working on a wide cross section of housing issues. Our goal is to create an affordable housing system that is better able to meet the diverse needs of our residents and communities. This will require both more money and more flexibility. In a series of articles to be published in early 2016, MACDC is articulating some of its thoughts about how we do this. The first article talked about how we can grow the resource pie – the first and most essential step to meeting growing demand for affordable housing. In this article, we talk about how to lower operating costs so that we can use our limited subsidies more efficiently. In subsequent articles, we will talk about how to make our programs more flexible, and how to ensure that we are allocating the limited resources that we have in a way that is more responsive to local market conditions and to the hopes and desires of local communities.

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Confronting the Challenge of Rising Operating Costs in Affordable Housing

One of the great challenges facing our country today is stagnant wages for most working families.  Median incomes today are almost identical to what they were in 2005.  According to the U.S. Census, median household income in Massachusetts in 2014 is just over $69,000 – the same as it was in 2004.  Even in Massachusetts, where the economy is better than many other places, wages are barely keeping up with inflation. Stagnant wages create many problems, but one of the lesser known impacts is how they negatively impact efforts to build and operate affordable housing. 

Virtually every affordable housing program in the United States restricts rents based on area median incomes, so when incomes stagnate, rents remain stagnant too.  With rental revenues flat, rising operating costs threaten the financial viability of many affordable housing developments – and make it harder to build new projects.  (Note: with rental vouchers, the government fills a portion of this gap with larger operating subsidies, but this simply means that fewer families can receive vouchers within a certain appropriation level).

For example, in the City of Boston operating costs have gone up so much over the past 15 years – relative to rent revenues – that the typical tax credit project in the City of Boston can support only $49,155 in debt compared to $117,825 in 2000.  This means each project needs nearly $70,000 more capital subsidy per unit – and, therefore, we create fewer units overall.   If this trend continues, we could see a day when Low Income Housing Tax Credit projects cannot support any debt whatsoever.

MACDC has been increasingly focused on this issue.  Recently, we hosted a peer learning session with the Massachusetts Housing Partnership to review their extensive data base of operating cost data.  The goal is to better understand which line items are driving costs up and how we might manage them. MACDC is also working with Boston LISC and others through the Mel King Institute for Community Building to offer more extensive support to our members in the area of asset management.  Currently, we are offering a seminar for CDC asset managers to help them more effectively take a “portfolio-wide” approach to managing their housing assets – and lowering operating costs.

In addition to these educational efforts, MACDC is taking specific action to address three key line items in every affordable housing operating budget.

Energy – Over a three-year period from 2012 through 2014, MACDC Members conducted energy retrofits on 3,600 rental units in their portfolios, with more units in the queue. CDCs are also tapping solar energy as a way to stabilize their energy costs for the long term.  MACDC is also working with colleagues such as LISC and New Ecology to advance reform of utility funded energy efficiency programs to make them work more effectively with affordable housing subsidies (and to make more dollars available for our sector).  And we are also working to advance solar energy legislation to lift solar net metering caps and promote more solar energy for lower income communities.

Insurance – MACDC has established a partnership with Chase & Lunt Insurance company to bulk purchase  property and casualty insurance with the goal of stabilizing premiums, while securing solid coverage. In 2016, we hope to grow the program significantly, so we can leverage more buying power in the marketplace and save more money for our members.  Over the long term, we must reverse the industry-wide practice of openly charging affordable housing projects higher premiums than comparable market rate projects.  We need to investigate this practice more deeply and then eliminate unfair (and maybe illegal) discrimination.

Property Taxes – While local assessors are supposed to account for rent restrictions when assessing affordable housing developments, we are hearing from our members and others that there is significant inconsistency with how this is done across the state and many affordable housing owners may be paying more than their fair share.  MACDC is seeking to learn more about this problem and help our members secure fair property assessments. We have recently partnered with the Lawyer’s Clearinghouse to obtain some professional guidance in shaping our strategy.

While we need to do everything we can to manage these operating costs, some increases are inevitable based on normal inflation.  Policy makers need to understand that affordable housing owners will need more subsidy – both capital dollars and operating subsidies – to build and maintain quality housing. 

Ultimately, of course, the best solution is to take concrete actions to begin lifting wages and salaries for working people, not so much because we want them to pay higher rents, but because we think all workers should earn enough to support their families, obtain a stable home and gain economic stability.

As we begin a new year, MACDC plans to be working on a wide cross section of housing issues. Our goal is to create an affordable housing system that is better able to meet the diverse needs of our residents and communities. This will require both more money and more flexibility. In a series of articles to be published over the next few weeks, MACDC will articulate some of its thoughts about how we do this. The first article talks about how we can grow the resource pie – the first and most essential step to meeting increasing demand for affordable housing. In subsequent articles, we will talk about how to reduce costs, how to make our programs more flexible, and how to ensure that we are allocating the limited resources that we have in a way that is more responsive to local market conditions and to the hopes and desires of local communities.

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Growing the Housing Resource Pie

Toward the end of a lovely video tribute to Jeanne DuBois, the former Executive Director of Dorchester Bay EDC, she is shown repeating many of her favorite sayings, including this one: “There is never enough money and there is always enough money”.

Jeanne, of course, is correct. In a society as rich as ours, there is always enough money to get something done if it is deemed important enough and if the sponsors are creative, persistent and patient in assembling the necessary resources.  CDCs, like Dorchester Bay, have become masters at this, cobbling together funding from 10 or more sources, working for years to put the deal together, and then pinching pennies to make the numbers add up.  Every year, we see more and more examples of this capacity to create exciting, impactful projects.

So why don’t we do it more often?  Well, because Jeanne is also right that there is never enough money … to do all the projects that are needed.

This is why MACDC is currently working with countless allies at the state and local level to grow the resource pie and ensure that resources are used as efficiently as possible. These efforts include the following:

• Continue to grow the MRVP program steadily in the coming years because it is one of the few programs that targets our most vulnerable families and provides a long-term solution to family homelessness. With support from Governor Baker and the State Legislature, housing advocates just won a major increase in funding for the Mass. Rental Voucher Program from $65 million to $90.9 million, a 40% increase, but more funding is needed to meet the incredible needs within our communities.
• Increase the Commonwealth’s Low Income Housing Tax Credit. MACDC recently testified in support of legislation filed by Rep. Kevin Honan that would do this by $15 million over four years to help preserve some of the 5,000 “13A projects,” whose affordability restrictions are set to expire in the next few years. MACDC is also working with Preservation of Affordable Housing (POAH) to stretch those tax credit dollars even further by adding a new Donation Tax Credit (DTC) modelled after programs in Illinois and Missouri. The DTC that will allow us to leverage significant federal tax savings by structuring transactions as donations to nonprofit organizations rather than sales.
• Increase the Commonwealth’s so-called “Volume Cap” that is allocated to Multi Family Rental Housing because this allows developers to take advantage of tax exempt bond financing and the 4% federal tax credits that can help subsidize both preservation and some production projects. In the past, these 4% credits have not been a constrained resource, but going forward there will likely be insufficient credits to meet all the demand. The affordable housing field could lose millions of dollars of subsidized tax credit equity unless we can restore some of this “volume cap” to rental housing.
• Secure new funding for the Brownfields Redevelopment Fund. This Fund has run out of money and it is a vital tool for putting contaminated land to use for housing and job creation. MACDC is seeking at least $15 million in new funding to ensure that this program remains viable.
• Allocate a reasonable proportion of the state’s capital budget to affordable housing. Last year, the Governor allocated $94.7 million to privately-owned affordable housing (in addition to $90 million for public housing), but this is not enough. We will continue to push to see this number increased next year.
• Fund the Housing Preservation and Stabilization Trust Fund, a relatively new program created in 2013 that provides housing for extremely low-income households and those who need supportive services. CDCs and other nonprofits are particularly focused on serving these populations and this year we secured $11.5 million for the program – overcoming a veto from Governor Baker who sought to reduce the line item to $10 million. We need to ensure that this program is consistently funded each year.
• Grow the City of Boston’s Housing Resources from $31 million to $51 million per year per Mayor Marty Walsh’s housing plan. We won a major victory toward this goal when Mayor Walsh increased the City’s Inclusionary Development Program’s fees. MACDC is also advocating for an increase in the City’s linkage fees. Finally, and most importantly, MACDC is working with a broad coalition of community groups to explore whether to pursue the Community Preservation Act in Boston in 2016 – a program that could generate nearly $20 million per year in new funding for community housing, historic preservation, open space preservation, and outdoor recreation.

To be sure, this is an extensive set of goals, but the needs within our communities are significant. Many families pay 30% or more of their income for housing.  Massachusetts currently spends less than 2 percent of its combined operating and capital budget on housing. This simply is not getting the job done. And given the growing evidence that quality, affordable housing leads to significantly better health and education outcomes, investing in housing is money well spent.